One important component of electronic trading systems is order priority. Order priority is the mechanism by which systems determine which orders are matched first, second, etc. To facilitate orderly and market-efficient transactions, electronic trading systems may establish rules or combinations of rules to determine which buyers and which sellers can trade with each other at a given time.
Priority rules may be based on both price, time or other suitable criteria. Typically, buyers and sellers place bids and offers for a defined class of traded goods. Each trading participant may place a bid or offer at a select price and volume. Priority may be awarded to the best or highest bid price from a trading participant who wants to buy the traded good, as well as to the best or lowest offer price from a trading participant who wants to sell the traded good. If multiple competing orders are resident in the system at the same price, then priority may be awarded to the earliest in time order among the competing orders. As such, a queue (or “stack”) of bids and offers develops in price and time order.
In some trading systems, once the queue forms, trading may begin only by an affirmative action on the part of a trading participant. This is sometimes knows as hit—i.e., an acceptance of a pending bid—and lift (or, “take”)—i.e., an acceptance of a pending offer—trading. In hit and lift trading, the trading participant who takes affirmative action to enact a trade—i.e., he either hits a bid or lifts an offer—may be known as the “active” participant. The trading participant whose bid was hit or whose offer was lifted may be known as a “passive” participant. The first of such active and passive trading participants in line to trade may be referred to herein as “current” participants. The current participants may trade while the other participants remain queued up in the stack below waiting to trade.
During some types of hit and lift trading, initial exclusivity may be awarded to the first trading participant that actively hit a bid or lifted an offer and to the first passive participant on the contra side of the trade. These trading participants may therefore transact trades further between each other and then subsequently with more contra counterparties before other participants on their same side who did not initially act affirmatively to trade or may not have participated passively on the contra side of the trade, respectively.
In some embodiments of hit and lift trading, once a trade has been transacted, the current participants may be allowed exclusivity to trade additional volume for a predetermined time period or some other suitable time period. A hit and lift system that includes the ability for current participants to transact additional volume once an initial trade has been transacted is described in detail in U.S. Pat. No. 6,560,580, which is incorporated herein by reference in its entirety. The additional time period grants the current participants preferably a predetermined time-limited exclusivity and allows the current participants at least one period of time to trade exclusively at that price.
After the current trading participants who have initial exclusivity are finished, or, alternatively “done”, trading, trading may continue down the stack in price and time order, or “priority”. Price and time priority trading rewards priority to same price orders that are submitted earliest in time.
Order exclusivity may be defined for purposes of this application as the exclusive or semi-exclusive right of certain participants to trade on orders in an electronic trading system. As described above, order exclusivity is granted to certain participants. Order exclusivity may be granted to traders in certain trading states based on certain criteria. For the purposes of this application, a trading state is defined as a set of rules or conditions that govern the interaction between trading participants.
It would be desirable to provide systems and methods that further define the rules or conditions that govern the awarding of priority/exclusivity to trading participants.